Corporation Case Digests Compiled.docx

CORPORATION CASE DIGESTS NARRA NICKEL MINING VS REDMONT (G.R. NO. 195580 APRIL 21, 2014) Narra Nickel Mining and Development Corp. vs Redmont Consolidated Mines Corporation G.R. No. 195580 April 21, 2014 Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources (DENR). Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6, 2006, assigned to petitioner McArthur. Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC conveyed, transferred and/or assigned its rights and interests over the MPSA application in favor of Narra. Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSA-AMAIVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays

Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred and assigned its rights and interest over the said MPSA application to Tesoro. On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3) separate petitions for the denial of petitioners’ applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA IV-1-12. In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens. Issue: Whether or not the petitioner corporations are Filipino and can validly be issued MPSA and EP. Held: No. The SEC Rules provide for the manner of calculating the Filipino interest in a corporation for purposes, among others, of determining compliance with nationality requirements (the ‘Investee Corporation’). Such manner of computation is necessary since the shares in the Investee Corporation may be owned both by individual stockholders (‘Investing Individuals’) and by corporations and partnerships (‘Investing Corporation’). The said rules thus provide for the determination of nationality depending on the ownership of the Investee Corporation and, in certain instances, the Investing Corporation. Under the SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal Control Test, there is no

need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino. The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, “but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.” Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly owned in the Investee Corporation. In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipinoforeign equity ownership is not in doubt, the Grandfather Rule will not apply.

NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., and MCARTHUR MINING, INC.,vs.REDMONT CONSOLIDATED MINES CORP., G.R. No. 195580 April 21, 2014 Facts: Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized and existing under Philippine laws, took interest in mining and exploring certain areas of the province of Palawan. After inquiring with the Department of Environment and Natural Resources (DENR), it learned that the areas where it wanted to undertake exploration and mining activities where already

covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the driving force behind petitioners’ filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which are deemed Filipino citizens. Redmont argued that given that petitioners’ capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens. On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining MPSAs. It held: [I]t is clearly established that respondents are not qualified applicants to engage in mining activities. On the other hand, [Redmont] having filed its own applications for an EPA over the areas earlier covered by the MPSA application of respondents may be considered if and when they are qualified under the law. The violation of the requirements for the issuance and/or grant of permits over mining areas is clearly established thus, there is reason to believe that the cancellation and/or revocation of permits already issued under the premises is in order and open the areas covered to other qualified applicants. WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining and Development Corp. as, DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID.6 With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or Technical Assistance Agreement (FTAA) or conversion of their MPSA applications to

FTAA, the matter for its rejection or approval is left for determination by the Secretary of the DENR and the President of the Republic of the Philippines. After a careful review of the records, the CA found that there was doubt as to the nationality of petitioners when it realized that petitioners had a common major investor, MBMI, a corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining to the exploitation of natural resources, the CA used the "grandfather rule" to determine the nationality of petitioners. Issues: I.The Court of Appeals erred when it did not dismiss the case for mootness despite the fact that the subject matter of the controversy, the MPSA Applications, have already been converted into FTAA applications and that the same have already been granted. Held: We find the petition to be without merit.This case not moot and academic. We of this Court note that a grave violation of the Constitution, specifically Section 2 of Article XII, is being committed by a foreign corporation right under our country’s nose through a myriad of corporate layering under different, allegedly, Filipino corporations. The intricate corporate layering utilized by the Canadian company, MBMI, is of exceptional character and involves paramount public interest since it undeniably affects the exploitation of our Country’s natural resources. The corresponding actions of petitioners during the lifetime and existence of the instant case raise questions as what principle is to be applied to cases with similar issues. No definite ruling on such principle has been pronounced by the Court; hence, the disposition of the issues or errors in the instant case will serve as a guide "to the bench, the bar and the public."35 Finally, the instant case is capable of repetition yet evading review, since the Canadian company, MBMI, can keep

on utilizing dummy Filipino corporations through various schemes of corporate layering and conversion of applications to skirt the constitutional prohibition against foreign mining in Philippine soil. the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (emphasis supplied) the Court finds that this case calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by the CA, doubt is present in the 6040 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation––MBMI, funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%.43 The assertion of petitioners that "doubt" only exists when the stockholdings are less than 60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their petition, only made an example of an instance where "doubt" as to the ownership of the corporation exists. It would be ludicrous to limit the application of the said word only to the instances where the stockholdings of non-Filipino stockholders are more than 40% of the total stockholdings in a corporation. The corporations interested in circumventing our laws would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for these applying corporations to state in their respective articles of incorporation that they have less than 60% Filipino stockholders since the applications will be denied instantly. Thus, various corporate schemes and layerings are utilized to circumvent the application of the Constitution. Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law,

creating a cloud of doubt in the Court’s mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must be used. II.The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction considering that the Panel of Arbitrators has no jurisdiction to determine the nationality of Narra, Tesoro and McArthur. We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant case. The POA has jurisdiction to settle disputes over rights to mining areas which definitely involve the petitions filed by Redmont against petitioners Narra, McArthur and Tesoro. It is clear that POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas. One such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another interested applicantn the case at bar, the dispute arose or originated from MPSA applications where petitioners are asserting their rights to mining areas subject of their respective MPSA applications. Since respondent filed 3 separate petitions for the denial of said applications, then a controversy has developed between the parties and it is POA’s jurisdiction to resolve said disputes. Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of primary jurisdiction. Euro-med Laboratories v. Province of Batangas elucidates:The doctrine of primary jurisdiction holds that if a case is such that its determination requires the expertise, specialized training and knowledge of an administrative body, relief must first be obtained in an administrative proceeding before resort to the courts is had even if the matter may well be within their proper jurisdiction. IV.The Court of Appeals’ ruling that Narra, Tesoro and McArthur are foreign corporations based on the "Grandfather Rule" is contrary to law, particularly the express mandate of the Foreign Investments Act of 1991, as amended, and the FIA Rules.

We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be discredited for lack of basis. Art. XII, Sec. 2 of the Constitution provides: Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture or productionsharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. The President may enter into agreements with Foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. (emphasis supplied) The emphasized portion of Sec. 2 which focuses on the State entering into different types of agreements for the exploration, development, and utilization of natural resources with entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to this case, since the issues are centered on the utilization of our country’s natural resources or specifically,

mining. Thus, there is a need to ascertain the nationality of petitioners since, as the Constitution so provides, such agreements are only allowed corporations or associations "at least 60 percent of such capital is owned by such citizens." Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee Corporation. The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.’ Under the liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipino-owned is considered as Filipino. The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality." Under the Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (i.e., "grandfathered") to determine the total percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly owned in the Investee Corporation x x x. Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners’ corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture,

MBMI’s Summary of Significant Accounting Policies statement– –regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups––involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the corporations mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned by MBMI. VI.The Court of Appeals erred when it concluded that the conversion of the MPSA Applications into FTAA Applications were of "suspicious nature" as the same is based on mere conjectures and surmises without any shred of evidence to show the same. We disagree. x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case only demonstrate the violations and lack of qualification of the respondent corporations to engage in mining. The filing of the FTAA application conversion which is allowed foreign corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but rather of foreign nationality who is disqualified under the laws. Corporate documents of MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that they are conducting operation only through their local counterparts.36 Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the fact of the OP’s Decision and Resolution. In their Reply, petitioners chose to ignore the OP Decision and continued to reuse their old arguments claiming that they were granted FTAAs and, thus, the case was moot. Petitioners filed a Manifestation and Submission dated October 19, 2012,40 wherein they asserted that the present petition is moot since, in a remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding companies" to

DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making their respective corporations fully-Filipino owned. The only thing clear and proved in this Court is the fact that the OP declared that petitioner corporations have violated several mining laws and made misrepresentations and falsehood in their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating that petitioners are not beyond going against or around the law using shifty actions and strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself because their defense of conversion of MPSAs to FTAAs has been discredited by the OP Decision. Selling of MBMI’s shares to DMCI -As stated before, petitioners’ Manifestation and Submission dated October 19, 2012 would want us to declare the instant petition moot and academic due to the transfer and conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly organized and existing under Philippine laws and is at least 60% Philippineowned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the transfer of their shares supposedly cured the "defect" of their previous nationality. They claimed that their current FTAA contract with the State should stand since "even wholly-owned foreign corporations can enter into an FTAA with the State."57 Petitioners stress that there should no longer be any issue left as regards their qualification to enter into FTAA contracts since they are qualified to engage in mining activities in the Philippines. Thus, whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners cannot be doubted since it would pass both tests.The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case and said fact should be disregarded. The manifestation can no longer be considered by us since it is being tackled in G.R. No. 202877 pending before this Court.1âwphi1 Thus, the question of whether petitioners, allegedly a Philippine-owned corporation due to the sale of MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue in this case.In ending, the "control test" is still the prevailing mode of determining whether or not a

corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the "grandfather rule."WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby AFFIRMED.

NARRA NICKEL MINING v. REDMONT CONSOLIDATED MINES CORP., GR No. 195580, 2014-04-21 Facts: Redmont... took interest in mining and exploring certain areas of the province of Palawan. it learned that the areas where it wanted to undertake exploration and mining activities where already covered by Mineral Production Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur. Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences Bureau (MGB),... DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan. In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it... was the driving force behind petitioners' filing of the MPSAs over the areas covered by applications since it knows that it can only participate in mining activities through corporations which are deemed Filipino

citizens. Redmont argued that given that petitioners'... capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in mining activities through MPSAs, which are reserved only for Filipino citizens.

corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine... nationality," pertains to the stricter, more stringent grandfather rule.

they claimed that the issue on nationality should not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of their capital is owned by citizens of the Philippines.

"Corporate layering" is admittedly allowed by the FIA; but if it is used to circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the pronouncement of petitioners that the grandfather rule has already been abandoned must be... discredited for lack of basis.

They asserted that... though MBMI owns 40% of the shares of PLMC (which owns 5,997 shares of Narra),[3] 40% of the shares of MMC (which owns 5,997 shares of McArthur)[4] and 40% of the shares of SLMC (which, in turn, owns 5,997 shares of Tesoro),[5] the shares of MBMI will not make it the owner of at least 60% of the capital stock of each of petitioners. They added that the best tool used in determining the nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the

Issues:

It is apparent that it is the intention of the framers of the Constitution to apply the grandfather rule in cases where corporate layering is present. Elementary in statutory construction is when there is conflict between the Constitution and a statute, the Constitution... will prevail. In this instance, specifically pertaining to the provisions under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will have no place of application. As decreed by the honorable framers of our Constitution, the... grandfather rule prevails and must be applied.

issue of petitioners' nationality, whether Filipino or foreign.

Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:

Ruling:

In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign... stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino-foreign equity ownership is not in doubt, the

Foreign Investments Act of 1991.

Basically, there are two acknowledged tests in determining the nationality of a corporation: the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and... other laws pertaining to the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality," pertains to the control test or the liberal... rule. On the other hand, the second part of the DOJ Opinion which provides, "if the percentage of the Filipino ownership in the

Grandfather Rule will not apply. After a scrutiny of the evidence extant on record, the Court finds that this case calls for the application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt prevails and persists in the corporate ownership of petitioners. Also, as found by... the CA, doubt is present in the 60-40 Filipino equity ownership of

petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian corporation MBMI, funded them. However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos are less than 60%. Obviously, the instant case presents a situation which exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt in the Court's mind. To determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather rule must... be used. To establish the actual ownership, interest or participation of MBMI in each of petitioners' corporate structure, they have to be "grandfathered." Interestingly, looking at the corporate structure of MMC, we take note that it has a similar structure and composition as McArthur. In fact, it would seem that MBMI is also a major investor and "controls"[45] MBMI and also, similar nominal... shareholders were present,... Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount with respect to the number of shares they subscribed to in the corporation, which is quite absurd since Olympic is the major stockholder in MMC. Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered," company layering was utilized by MBMI to gain control over McArthur. It is apparent that MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign... corporation. Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per share Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same figures as the corporate structure of petitioner McArthur, down to the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell.

The figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same. Delving deeper, we scrutinize SMMI's corporate structure: After subsequently studying SMMI's corporate structure, it is not farfetched for us to spot the glaring similarity between SMMI and MMC's corporate structure. Again, the presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar,... Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the amount paid by MBMI which now reflects the amount of two million seven hundred ninety four thousand... pesos (PhP 2,794,000). Oddly, the total value of the amount paid is two million eight hundred nine thousand nine hundred pesos (PhP 2,809,900). Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or more of their equity interests. Such conclusion is derived from grandfathering petitioners'... corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture, MBMI's Summary of Significant Accounting Policies statement regarding the "joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups involves SMMI,... Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture agreements with, practically exercising majority control over the corporations... mentioned. In effect, whether looking at the capital structure or the underlying relationships between and among the corporations, petitioners are NOT Filipino nationals and must be considered foreign since 60% or more of their capital stocks or equity interests are owned... by MBMI.

G.R. No. 159108

June 18, 2012

GOLD LINE TOURS, INC., Petitioner, vs. HEIRS OF MARIA CONCEPCION LACSA, Respondents. FACTS: Ma. Concepcion Lacsa (Concepcion) boarded a Goldline passenger bus owned and operated by Travel &Tours Advisers, Inc. Before reaching their destination, the Goldline bus collided with a passenger jeepneys and as a result, a metal part of the jeepney was detached and struck Concepcion in the chest, causing her instant death. Then, Concepcion’s heirs, represented by Teodoro Lacsa, instituted in the RTC a suit against Travel & Tours Advisers Inc. to recover damages arising from breach of contract of carriage. The RTC ruled in favor of the heirs of Concepcion and thereafter, Gold Line appealed the decision to the CA but the CA dismissed the appeal for failure of the defendants to pay the docket and other lawful fees within the required period as provided in Rule 41, Section 4 of the Rules of Court. The dismissal became final. Thereafter, the heirs of concepcion moved for the issuance of a writ of execution to implement the decision and RTC granted their motion. Petitioner submitted a verified third party claim, claiming that the tourist bus be returned to petitioner because it was the and that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc. then RTC dismissed petitioner’s verified third-party claim, observing that the identity of Travel & Tours Adivsers, Inc. could not be divorced from that of petitioner considering that Cheng had claimed to be the operator as well as the President/Manager/incorporator of both entities; and that Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline. They (Goldline) appealed the decision to CA but CA dismissed their petition and affirmed the decision of RTC. Hence this appeal to the Supreme Court where petitioner seeks to reverse the decision of CA. ISSUE:

Whether or not the proposition of the third party claimant by the petitioner where Travel & Tours Advises, Inc. has an existence separate and/or distinct from Gold Line Tours, Inc. RULING: The Supreme Court the DENIED the petition for review on certiorari, and AFFIRMED the decision promulgated by the Court of Appeals. The two corporations are liable to the death of Ma. Concepcion Lacsa. The Court was not persuaded by the proposition of the third party claimant that a corporation has an existence separate and/or distinct from its members insofar as this case at bar is concerned, for the reason that whenever necessary for the interest of the public or for the protection of enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public convenience, justify wrong, protect fraud or defend crime. In the case of Palacio vs. Fely Transportation Co., the Supreme Court held that: "Where the main purpose in forming the corporation was to evade one’s subsidiary liability for damages in a criminal case, the corporation may not be heard to say that it has a personality separate and distinct from its members, because to allow it to do so would be to sanction the use of fiction of corporate entity as a shield to further an end subversive of justice (La Campana Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., L-5677, May 25, 1953). This is what the third party claimant wants to do including the defendant in this case, to use the separate and distinct personality of the two corporation as a shield to further an end subversive of justice by avoiding the execution of a final judgment of the court. The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the use of the

doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the ends of justice.

PIONEER INSURANCE SURETY CORPORATION v. MORNING STAR et al. Topic: The Corporation and the State FACTS:  Morning Start is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and Wong Yan Tak as shareholders and members of the board of directors  International Air Transport Association (IATA) is a Canadian corporation licensed to do business in the Philippines  IATA appointed Morning Star as an accredited travel agent  IATA and Morning Star entered into a passengers sales agency agreement in which Morning Star is tasked to report all air transport ticket sales to IATA  Pioneer Insurance Surety Corp. is the surety company of Morning Star  Morning Star accumulated over Php 100m and USD 457k of debt from IATA which was paid for by Pioneer Insurance  Pioneer Insurance filed a case against Morning Start and its shareholders for a sum of money  Pioneer’s arguments included: o They included the individual respondents because they, as shareholders and members of the board of directors, were grossly negligent and were in bad faith when they handled Morning Star (massive debt was caused by their gross negligence and bad faith) o Cited Section 31 of the Corporation Code  Individual respondents argued that: o The shareholders are separate and distinct from the corporation, hence they cannot be sued  RTC: Morning Star and the individual respondents are liable  CA: absolved the individual respondents and only held Morning Star liable for the debt ISSUE: WON the individual respondents should be held liable for the company’s debt

HELD:  NO  The SC maintained that the corporation’s personality is separate and distinct from those that represent the corporation  This separate corporate personality shields corporate officers acting in good faith and within the scope of their authority from personal liability except for situations enumerated by law and jurisprudence  The Court also found that the individual respondents DID NOT act in bad faith o Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, not simply bad judgement or negligence  Also, individual respondents did no exhibit gross negligence because the Court found out that the same board of directors were also managing another corporation which did fairly well compared to Morning Star. The mere fact that Morning Star incurred huge losses and that it has no assets at the time it contracted the large financial obligations did not amount to gross negligence by the members of the board of directors (individual respondents).

JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No. 207246, 2016-11-22 Facts: On June 28, 2011, the Court issued the Gamboa Decision,... that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). The Gamboa Decision attained finality on October 18, 2012, and Entry of Judgment was thereafter issued on December 11, 2012 On May 20, 2013, the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8 Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino

ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. On June 10, 2013, petitioner Roy, as a lawyer and taxpayer, filed the Petition,[15] assailing the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave abuse of discretion. Issues: whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa Resolution Ruling: SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution. Gamboa Decision "capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). the Gamboa Resolution Foreign Investments Act of 1991 ("FIA") Gamboa Resolution put to rest the Court's interpretation of the term "capital" Full beneficial ownership of stocks, coupled with appropriate voting rights is essential... reiterates and confirms the interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers to shares with voting rights, as well as with full beneficial ownership. Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact, Section 2 goes beyond

requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights is required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of discretion While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of stocks requirement in the FIA, this will not, as it does not, render it invalid meaning, it does not follow that the SEC will not apply this test in determining whether the shares claimed to be owned by Philippine nationals are Filipino, i.e., are held by them by mere title or in full beneficial ownership. To be sure, the SEC takes its guiding lights also from the FIA and its implementing rules, the Securities Regulation Code

JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No. 207246, 2016-11-22 Facts: the Court issued the Gamboa Decision, the dispositive portion of which reads:... we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law. The Gamboa Decision attained finality... on October 18, 2012 SEC posted a Notice in its website inviting the public to attend a public dialogue and to submit comments on the draft memorandum circular...

on the guidelines to be followed in determining compliance with the Filipino ownership requirement in public utilities under Section 11, Article XII of the Constitution pursuant to the Court's directive in the Gamboa Decision. SEC received a copy of the Entry of Judgment... from the Court certifying that on October 18, 2012, the Gamboa Decision had become final and executory. petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments on the draft guidelines. the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8 entitled "Guidelines on Compliance with the FilipinoForeign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities." It was published in the Philippine Daily Inquirer and the Business Mirror Section 2 of SEC-MC No. 8 provides: Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. petitioner Roy, as a lawyer and taxpayer, filed the Petition,... assailing the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave abuse of discretion. Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares of a public utility corporation, whether common, preferred nonvoting, preferred voting or any other class of shares. Petitioner Roy also questions the ruling of the SEC that respondent Philippine Long Distance Telephone Company ("PLDT") is compliant with the constitutional rule on foreign ownership. He prays that the Court declare SEC-MC No. 8 unconstitutional and direct the SEC to issue new

guidelines regarding the determination of compliance with Section 11, Article XII of the Constitution in accordance with Gamboa. respondent PLDT filed its Comment PLDT posited that the Petition should be dismissed because it violates the doctrine of hierarchy of courts as there are no compelling reasons to invoke the Court's original jurisdiction; it is prematurely filed because petitioner Roy failed to exhaust administrative remedies before the SEC; the principal actions/remedies of mandamus and declaratory relief are not within the exclusive and/or original jurisdiction of the Court; the petition for certiorari is an inappropriate remedy since the SEC issued SEC-MC No. 8 in the exercise of its quasi-legislative power; it deprives the necessary and indispensable parties of their constitutional right to due process; and the SEC merely implemented the dispositive portion of the Gamboa Decision. respondents Chairperson Teresita Herbosa and SEC filed their Consolidated Comment. They sought the dismissal of the petitions on the following grounds: (1) the petitioners do not possess locus standi to assail the constitutionality of SEC-MC No. 8; (2) a petition for certiorari under Rule 65 is not the appropriate and proper remedy to assail the validity and constitutionality of the SEC-MC No. 8; (3) the direct resort to the Court violates the doctrine of hierarchy of courts; (4) the SEC did not abuse its discretion; (5) on PLDT's compliance with the capital requirement as stated in the Gamboa ruling, the petitioners' challenge is premature considering that the SEC has not yet issued a definitive ruling thereon. Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene... and its Comment-in Intervention. The PSE alleged that it has standing to intervene as the primary regulator of the stock exchange and will sustain direct injury should the petitions be granted. The PSE argued that in the Gamboa ruling, "capital" refers only to shares entitled to vote in the election of directors, and excludes those not so entitled; and the dispositive portion of the decision is the controlling factor that determines and settles the questions presented in the case. The PSE further argued that adopting a new interpretation of Section 11, Article XII of the Constitution violates

the policy of conclusiveness of judgment, stare decisis, and the State's obligation to maintain a stable and predictable legal framework for foreign investors under international treaties; and adopting a new definition of "capital" will prove disastrous for the Philippine stock market. The Court granted the Motion to Intervene filed by PSE. Issues: whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa Resolution... whether the SEC gravely abused its discretion in ruling that PLDT is compliant with the constitutional limitation on foreign ownership. whether the SEC's issuance of SEC-MC No. 8 is tainted with grave abuse of discretion. Was the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution declared for the first time by the Court in the Gamboa Decision modified in the Gamboa Resolution? Ruling: he Court issued the Gamboa Decision, the dispositive portion of which reads: At the outset, the Court disposes of the second issue for being without merit. In its Consolidated Comment dated September 13, 2013,... the SEC already clarified that it "has not yet issued a definitive ruling anent PLDT's compliance with the limitation on foreign ownership imposed under the Constitution and relevant laws [and i]n fact, a careful perusal of x x x SEC-MC No. 8 readily reveals that all existing covered corporations which are non-compliant with Section 2 thereof were given a period of one (1) year from the effectivity of the same within which to comply with said ownership requirement. x x x." Thus, in the absence of a definitive ruling by the SEC on PLDT's compliance with the capital requirement pursuant to the Gamboa Decision and Resolution, any question relative to the inexistent ruling is premature. Also, considering that the Court is not a trier of facts and is in no position to make a factual determination of PLDT's compliance with the

constitutional provision under review, the Court can only resolve the first issue , which is a pure question of law. SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution. To determine what the Court directed the SEC to do - and therefore resolve whether what the SEC did amounted to grave abuse of discretion - the Court resorts to the decretal portion of the Gamboa Decision, as this is the portion of the decision that a party relies upon to determine his or her rights and duties To recall, the sole issue in the Gamboa case was: "whether the term 'capital' in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility." The Court directly answered the Issue and consistently defined the term "capital" as follows:x x x The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non voting preferred shares. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. The decretal portion of the Gamboa Decision follows the definition of the term "capital" in the body of the decision, to wit: "x x x we x x x rule that the term 'capital' in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares)." The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in furtherance of "the

intent and letter of the Constitution that the 'State shall develop a selfreliant and independent national economy effectively controlled by Filipinos' [because a] broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. urther, the Court noted that the foregoing interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities; and, as revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a corporation. The Court is convinced that it was not. The Gamboa Resolution consists of 51 pages For the most part of the Gamboa Resolution, the Court, after reviewing SEC and DOJ Opinions as well as the provisions of the FIA and its predecessor statutes,... reiterated that both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a corporation is a "Philippine national"... and that a "Philippine national," as defined in the FIA and all its predecessor statutes, is "a Filipino citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to vote," is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens." The Court also reiterated that, from the deliberations of the Constitutional Commission, it is evident that the term "capital" refers to controlling interest of a corporation,[76] and the framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. The "Final Word" of the Gamboa Resolution put to rest the Court's interpretation of the term "capital" The assailed SEC-MC No. 8.The relevant provision in the assailed SECMC No. 8 IS Section 2, which provides:Section 2. All covered corporations shall, at all times, observe the constitutional or statutory

ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock, whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's unambiguous pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights is required."[79] Clearly, SEC-MC No. 8 cannot be said to have been issued with grave abuse of discretion. As noted earlier, the FIA-IRR states:Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered.For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals. t" The emphasized portions in the foregoing provision is the equivalent of the so-called "beneficial ownership test". That is all. The term "full beneficial ownership" found in the FIA-IRR is to be understood in the context of the entire paragraph defining the term "Philippine national". Mere legal title is not enough to meet the required Filipino equity, which means that it is not sufficient that a share is registered in the name of a Filipino citizen or national, i.e., he should also have full beneficial ownership of the share. If the voting right of a

share held in the name of a Filipino citizen or national is assigned or transferred to an alien, that share is not to be counted in the determination of the required Filipino equity. In the same vein, if the dividends and other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted. In this regard, it is worth reiterating the Court's pronouncement in the Gamboa Decision, which is consistent with the FIA-IRR, viz:Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required (or the State's grant of authority to operate a public utility. And the "Final Word" of the Gamboa Resolution is in full accord with the foregoing pronouncement of the Court, to wit:XII.Final Wordx x x The FIA's implementing rules explain that "[f]or stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential." Given that beneficial ownership of the outstanding capital stock of the public utility corporation has to be determined for purposes of compliance with the 60% Filipino ownership requirement, the definition in the SRC-IRR can now be applied to resolve only the question of who is the beneficial owner or who has beneficial ownership of each "specific stock" of the said corporation. Thus, if a "specific stock" is owned by a Filipino in the books of the corporation, but the stock's voting power or disposing power belongs to a foreigner, then that "specific stock" will not be deemed as "beneficially owned" by a Filipino.Stated inversely, if the Filipino has the "specific stock's" voting power (he can vote the stock or direct another to vote for him), or the Filipino has the investment

power over the "specific stock" (he can dispose of the stock or direct another to dispose it for him), or he has both (he can vote and dispose of the "specific stock" or direct another to vote or dispose it for him), then such Filipino is the "beneficial owner" of that "specific stock" and that "specific stock" is considered (or counted) as part of the 60% Filipino ownership of the corporation. In the end, all those "specific stocks" that are determined to be Filipino (per definition of "beneficial owner" or "beneficial ownership") will be added together and their sum must be equivalent to at least 60% of the total outstanding shares of stock entitled to vote in the election of directors and at least 60% of the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. To reiterate, the "beneficial owner or beneficial ownership" definition in the SRC-IRR is understood only in determining the respective nationalities of the outstanding capital stock of a public utility corporation in order to determine its compliance with the percentage of Filipino ownership required by the Constitution. As worded, effective control by Filipino citizens of a public utility is already assured in the provision. With respect to a stock corporation engaged in the business of a public utility, the constitutional provision mandates three safeguards: (1) 60% of its capital must be owned by Filipino citizens; (2) participation of foreign investors in its board of directors is limited to their proportionate share in its capital; and (3) all its executive and managing officers must be citizens of the Philippines. Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation. This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation. In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders. In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote.

Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

"each class of shares, regardless of differences in voting rights, privileges and restrictions." Petitioners cannot, after Gamboa has attained finality, seek a belated correction or reconsideration of the Court's unequivocal definition of the term "capital". Indeed, the definition of the term "capital" in the fallo of the Gamboa Decision has acquired finality. Because the SEC acted pursuant to the Court's pronouncements in both the Gamboa Decision and Gamboa Resolution, then it could not have gravely abused its discretion

As revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a corporation x x x.

That portion found in the body of the Gamboa Resolution which the petitioners rely upon is nothing more than an obiter dictum and the SEC could not be expected to apply it as it was not - is not - a binding pronouncement of the Court.

The Gamboa Decision held that preferred shares are to be factored in only if they are entitled to vote in the election of directors. If preferred shares have no voting rights, then they cannot elect members of the board of directors, which wields control of the corporation.

Court rules that SEC-MC No. 8 is not contrary to the Court's definition and interpretation of the term "capital". Accordingly, the petitions must be denied for failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.

The onus rests on petitioners to clearly and sufficiently establish that the SEC, in issuing SEC-MC No. 8, acted in a capricious, whimsical, arbitrary or despotic manner in the exercise of its jurisdiction as to be equivalent to lack of jurisdiction or that the SEC's abuse of discretion is so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law and the Gamboa Decision and Resolution. Petitioners miserably failed in this respect.

the key to nationalism is in the individual. Particularly for a public utility corporation or association, whether stock or non-stock, it starts with the Filipino shareholder or member who, together with other Filipino shareholders or members wielding 60% voting power, elects the Filipino director who, in turn, together with other Filipino directors comprising a majority of the board of directors or trustees, appoints and employs the all-Filipino management team. This is what is envisioned by the Constitution to assure effective control by Filipinos. If the safeguards, which are already stringent, fail, i.e., a public utility corporation whose voting stocks are beneficially owned by Filipinos, the majority of its directors are Filipinos, and all its managing officers are Filipinos, is proalien (or worse, dummies), then that is not the fault or failure of the Constitution. It is the breakdown of nationalism in each of the Filipino shareholders, Filipino directors and Filipino officers of that corporation. No Constitution, no decision of the Court, no legislation, no matter how ultranationalistic they are, can guarantee nationalism.

the fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, clear and unequivocaL While there is a passage in the body of the Gamboa Resolution that might have appeared contrary to the fallo of the Gamboa Decision - capitalized upon by petitioners to espouse a restrictive re-interpretation of "capital" - the definiteness and clarity of the fallo of the Gamboa Decision must control over the obiter dictum in the Gamboa Resolution regarding the application of the 60-40 Filipino-foreign ownership requirement to

WHEREFORE, premises considered, the Court DENIES the Petition and Petition-in-Intervention.

Wilson C. Gamboa, Jr.,... filed a Motion for Leave to File Petition-inIntervention

JOSE M. ROY III v. CHAIRPERSON TERESITA HERBOSA, GR No. 207246, 2016-11-22

PLDT posited that the Petition should be dismissed because it violates the doctrine of hierarchy of courts as there are no compelling reasons to invoke the Court's original jurisdiction;... respondents Chairperson Teresita Herbosa and SEC... sought the dismissal of the petitions... the Philippine Stock Exchange, Inc. ("PSE") filed its Motion to Intervene with Leave of Court[25] and its Comment-in Intervention.

Facts: The Gamboa Decision attained finality... the SEC posted a Notice in its website inviting the public to attend a public dialogue and to submit comments on the draft memorandum circular... on the guidelines to be followed in determining compliance with the Filipino ownership requirement in public utilities under Section 11, Article XII of the Constitution pursuant to the Court's directive in the Gamboa Decision.[7]... petitioner Atty. Jose M. Roy III ("Roy") submitted his written comments on the draft guidelines.[12]... the SEC, through respondent Chairperson Teresita J. Herbosa, issued SEC-MC No. 8 entitled "Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities." Section 2 of SEC-MC No. 8 provides:Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. petitioner Roy... filed the Petition,[15] assailing the validity of SEC-MC No. 8 for not conforming to the letter and spirit of the Gamboa Decision and Resolution and for having been issued by the SEC with grave abuse of discretion. Petitioner Roy seeks to apply the 60-40 Filipino ownership requirement separately to each class of shares of a public utility corporation, whether common, preferred nonvoting, preferred voting or any other class of shares.

The PSE further argued that adopting a new interpretation of Section 11, Article XII of the Constitution violates the policy of conclusiveness of judgment, stare decisis, and the State's obligation to maintain a stable and predictable legal framework for foreign investors under international treaties; and adopting a new definition of "capital" will prove disastrous for the Philippine stock market. Issues: whether the SEC gravely abused its discretion in issuing SEC-MC No. 8 in light of the Gamboa Decision and Gamboa Resolution,... whether the SEC gravely abused its discretion in ruling that PLDT is compliant with the constitutional limitation on foreign ownership. Ruling: in the Gamboa ruling, "capital" refers only to shares entitled to vote in the election of directors, and excludes those not so entitled;... a. No actual controversy. b. No locus standi. the SEC did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the Gamboa Decision and Resolution. the term "capital" in Section II, Article XII of the I987 Constitution refers only to shares of stock entitled to vote in the election of directors,... and not to the total outstanding capital stock

The dispositive portion of the Court's ruling is addressed not to PLDT but solely to the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution. the sole issue in the Gamboa case was: "whether the term 'capital' in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility." The Court directly answered the Issue and consistently defined the term "capital" as follows:x x x The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non voting preferred shares. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. The Court adopted the foregoing definition of the term "capital" in Section 11, Article XII of the 1987 Constitution in furtherance of "the intent and letter of the Constitution that the 'State shall develop a selfreliant and independent national economy effectively controlled by Filipinos' [because a] broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility."... the evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. it would be apropos to state that since Filipinos own at least 60% of the outstanding shares of stock entitled to vote directors, which is what the Constitution precisely requires, then the Filipino stockholders control the corporation, i.e., they dictate corporate actions and decisions, and they have all the rights of ownership including, but not limited to, offering certain preferred shares that may have greater economic interest to foreign investors - as the need for capital for corporate pursuits (such as expansion), may be good for the corporation that they own. Surely, these "true owners" will not allow any dilution of their ownership and control if such move will not be beneficial to them.

Echoing the FIA-IRR, the Court stated in the Gamboa Decision that:Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]." Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State's grant of authority to operate a public utility. Was the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution declared for the first time by the Court in the Gamboa Decision modified in the Gamboa Resolution?The Court is convinced that it was not. A domestic corporation is a "Philippine national" only if at least 60% of its voting stock is owned by Filipino citizens." The Court also reiterated that, from the deliberations of the Constitutional Commission, it is evident that the term "capital" refers to controlling interest of a corporation,[76] and the framers of the Constitution intended public utilities to be majority Filipino-owned and controlled. The full beneficial ownership test. full ownership up to 60% of a public utility encompasses both control and economic rights, both of which must stay in Filipino hands. Filipinos, who own 60% of the controlling interest, must also own 60% of the economic interest in a public utility. "[b]eneficial owner or beneficial ownership means any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power (which includes the power to vote or direct the voting of such security) and/or investment returns or power (which includes the power to dispose of, or direct the disposition of such security)... the Filipino

shareholder or member who, together with other Filipino shareholders or members wielding 60% voting power, elects the Filipino director who, in turn, together with other Filipino directors comprising a majority of the board of directors or trustees, appoints and employs the all-Filipino management team. This is what is envisioned by the Constitution to assure effective control by Filipinos. WHEREFORE, premises considered, the Court DENIES the Petition and Petition-in-Intervention. Principles:

ANDAYA VS. RURAL BANK OF CABADBARAN, INC G.R. No. 188769. August 3, 2016 Chico, Nazario, J. FACTS:  Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000  Chute duly endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the bank to register the transfer and issue new stock certificates in favor of the latter  A few days later, the bank’s corporate secretary wrote Chute to inform her that he could not register the transfer due to a previous’ stockholder’s Resolution where existing stockholders were given priority to buy the shares of others in the event that the latter offered those shares for sale  He then asked Chute if she, instead, wished to have her shares offered to existing stockholders  Meanwhile, the bank’s legal counsel, respondent Gonzalez, informed Andaya that the latter’s request had been referred to the bank’s board of directors for evaluation.  Citing Section 98 of the Corporation Code, Andaya claimed that the purported restriction on the transfer of shares of stock agreed upon during the 2001 stockholders’ meeting could not deprive him of his right as a transferee.

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The bank still refused the transfer arguing that it may refuse to accept a competitor as one of its stockholders Andaya instituted an action for mandamus and damages against Rural Bank of Cabadbaran which was dismissed by the RTC, hence this petition for review

ISSUE: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new stock certificates in his name.

RULING: Yes. According to Price vs Martin, A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose of voting, must secure a standing by having the transfer recorded upon the books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be made. The registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. It is already settled jurisprudence that the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock.

SERENO, C.J.: This case concerns the dismissal[1] of an action for mandamus that sought to compel respondents Rural Bank of Cabadbaran, Inc., Demosthenes P. Oraiz, and Ricardo D. Gonzalez to register the transfer of shares of stock and issue the corresponding stock certificates in favor of petitioner Joseph Omar O. Andaya. The Cabadbaran City Regional Trial Court (RTC) ifuled that petitioner Andaya was not entitled to the remedy of mandamus, s|ince the transfer of the subject shares of stock had not yet been recorded in the corporation's

stock and transfer book, and the registered owner, Conception O. Chute, had not given him a special power of attorney to makq the transfer. Andaya has filed a Rule 45 petition directly before this Court, insisting that he has a cause of action to institute the suit. FACTS Andaya bought from Chute 2,200 shares of stock in the Rural Bank of Cabadbaran for P220,000.[2] The transaction was evidenced by a notarized document denominated as Sale of Shares of Stocks.[3] Chute duly endorsed and delivered the certificates of stock to Andaya and, subsequently, requested the bank to register the transfer and issue new stock certificates in favor of the latter.[4] Andaya also separately communicated[5] with the bank's corporate secretary, respondent Oraiz, reiterating Chute's request for the issuance of new stock certificates in petitioner's favor. A few days later, the bank's corporate secretary wrote[6] Chute to inform her that he could not register the transfer. He explained that under a previous stockholders' Resolution, existing stockholders were given priority to buy the shares of others in the event that the latter offered those shares for sale (i.e., a right of first refusal). He then asked Chute if she, instead, wished to have her shares offered to existing stockholders. He told her that if no other stockholder would buy them, she could then proceed to sell her shares to outsiders.

Meanwhile, the bank's legal counsel, respondent Gonzalez, informed[7] Andaya that the latter's request had been referred to the bank's board of directors for evaluation. Gonzalez also furnished him a copy of the bank's previous reply to Chute concerning a similar request from her. Andaya responded[8] by reiterating his earlier request for the registration of the transfer and the issuance of new certificates of stock in his favor. Citing Section 98 of the Corporation Code, he claimed that the purported restriction on the transfer of shares of stock agreed upon during the 2001 stockholders' meeting could not deprive him of his right as a transferee. He pointed out that the restriction did not appear in the bank's articles of incorporation, bylaws, or certificates of stock. The bank eventually denied the request of Andaya.[9] It reasoned that he had a conflict of interest, as he was then president and chief executive officer of the Green Bank of Caraga, a competitor bank. Respondent bank concluded that the purchase of shares was not in good faith, and that the purchase "could be the beginning of a hostile bid to take-over control of the [Rural Bank of Cabadbaran]."[10]Citing Gokongwei v. Securities and Exchange Commission,[11] respondent insisted that it may refuse to accept a competitor as one of its stockholders. It also maintained that Chute should have first offered her shares to the other stockholders, as agreed upon during the 2001 stockholders' meeting. Consequently, Andaya instituted an action for mandamus and damages[12] against the Rural Bank of Cabadbaran; its corporate secretary, Oraiz; and its

legal counsel, Gonzalez. Petitioner sought to compel them to record the transfer in the bank's stock and transfer book and to issue new certificates of stock in his name. The RTC issued a Decision dismissing the complaint. Citing Porice v. Alsons Cement Corporation[13] the trial court ruled that Andaya had no standing to compel the bank to register the transfer and issue stock certificates in his name.[14] It explained that he had failed "[to show] that the transfer of subject shares of stock [was] recorded in the stock and transfer book of [the] bank or that [he was] authorized by [Chute] to make the transfer."[15] According to the trial court, Ponce requires that a person seeking to transfer shares must appear to have an express instruction and a specific authority from the registered stockholder, such as a special power of attorney, to cause the disposition of stocks registered in the stockholder's name. It ruled that "[w]ithout the sale first registered or an authority from the transferor, it [was] therefore unmistakably clear that [Andaya had] no cause of action for mandamus against [the] bank." Consequently, Andaya directly filed with this Court a Rule 45 petition for review on certiorari assailing the RTC Decision on pure questions of law. ISSUES The Court culls the issues raised by petitioner as follows:

1. Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book, as well as issue new stock certificates in his name 2. Whether a writ of mandamus should issue in favor of petitioner OUR RULING The petition is partly meritorious. It is already settled jurisprudence[16] that the registration of a transfer of shares of stock is a ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even upon the instance of a bona fidetransferee[17] who is able to establish a clear legal right to the registration of the transfer.[18] This legal right inherently flows from the transferee's established ownership of the stocks, a right that has been recognized by this Court as early as in Price v. Martin:[19] A person who has purchased stock, and who desires to be recognized as a stockholder, for the purpose of voting, must secure a standing by having the transfer recorded upon the books. If the transfer is not duly made upon request, he has, as his remedy, to compel it to be made.[20] (Emphases supplied)

Thus, in Pacific Basin Securities Co., Inc., v. Oriental Petroleum and Minerals Corp.,[21]this Court stressed that the registration of a transfer of shares is ministerial on the part of the corporation: Clearly, the right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. The Court had ruled in Rural Bank of Salinas, Inc. v. Court of Appeals that the corporation's obligation to register is ministerial, citing Fletcher, to wit: In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the question of ownership. The duty of the corporation to transfer is a ministerial one and if it refuses to make such transaction without good cause, it may be compelled to do so by mandamus. The Court further held in Rural Bank of Salinas that the only limitation imposed by Section 63 of the Corporation Code is when the corporation holds any unpaid claim against the shares intended to be transferred.[22] (Emphasis supplied; citations omitted) Consequently, transferees of shares of stock are real parties in interest having a cause of action for mandamus to compel the registration of the transfer and the corresponding issuance of stock certificates. We also rule that Andaya has been able to establish

that he is a bona fide transferee of the shares of stock of Chute. In proving this fact, he presented to the RTC the following documents evidencing the sale: (1) a notarized Sale of Shares of Stocks[23] showing Chute's sale of 2,200 shares of stock to petitioner; (2) a Documentary Stamp Tax Declaration/Return[24] (3) Capital Gains Tax Return;[25] and (4) stock certificates[26] covering the subject shares duly endorsed by Chute. The existence, genuineness, and due execution of these documents have been admitted[27] and remain undisputed. There is no doubt that Andaya had the standing to initiate an action for mandamus to compel the Rural Bank of Cabadbaran to record the transfer of shares in its stock and transfer book and to issue new stock certificates in his name. As the transferee of the shares, petitioner stands to be benefited or injured by the judgment in the instant petition, a judgment that will either order the bank to recognize the legitimacy of the transfer and petitioner's status as stockholder or to deny the legitimacy thereof. This Court further finds that the reliance of the RTC on Ponce in finding that petitioner had no cause of action for mandamus against the defendant bank was misplaced. In Ponce, the issue resolved by this Court was whether the petitioner therein had a cause of action for mandamus to compel the issuance of stock certificates, not the registration of the transfer. Ruling in the negative, the Court said in that case that without any record of the transfer of shares in the stock and transfer book of the corporation, there would be no clear basis to compel that corporation to issue a stock

certificate. By the import of Section 63 of the Corporation Code, the stock and transfer book would be the main reference book in ascertaining a person's entitlement to the rights of a stockholder. Consequently, without the registration of the transfer, the alleged transferee could not yet be recognized as a stockholder who is entitled to be given a stock certificate. In contrast, at the crux of this petition are the registration of the transfer and the issuance of the corresponding stock certificates. Requiring petitioner to register the transaction before he could institute a mandamus suit in supposed abidance by the ruling in Ponce was a palpable error. It led to an absurd, circuitous situation in which Andaya was prevented from causing the registration of the transfer, ironically because the shares had not been registered. With the logic resorted to by the RTC, transferees of shares of stock would never be able to compel the registration of the transfer and the issuance of new stock certificates in their favor. They would first be required to show the registration of the transfer in their names — the ministerial act that is the subject of the mandamus suit in the first place. The trial court confuses the application of the dicta in Ponce, which is pertinent only to the issuance of new stock certificates, and not to the registration of a transfer of shares. As Ponce itself provides, these two are entirely different events. The RTC's anomalous reasoning cannot be given legal imprimatur by this Court. With regard to the requisite authorization from the

transferor, the Court stresses that the concern in Ponce was rooted in whether or not the alleged right of the petitioner therein to compel the issuance of new stock certificates was clearly established. Reiterating the ruling in Rivera v. FIorendo[28] and Eager v. Bryan,[29] the Court therein maintained that a mere endorsement of stock certificates by the supposed owners of the stock could not be the basis of an action for mandamus in the absence of express instructions from them. According to the Court, the reason behind this ruling was that the corporation's duty and legal obligation therein were not so clear and indisputable as to justify the issuance of the writ. The ambiguity of the alleged transferee's deed of undertaking with endorsement led the Court in Ponce to rule that mandamus would have issued had the registered owner himself requested the registration of the transfer, or had the person requesting the registration secured a special power of attorney from the registered owner. In the instant case, however, the submitted documents did not merely consist of an endorsement. Rather, petitioner presented several undisputed documents,[30] among which was respondent Oraiz's letter to Chute denying her request to transfer the stock standing in her name in favor of Andaya. This letter clearly indicated that the registered owner herself had requested the registration of the transfer of shares of stock. There was therefore no sensible reason for the RTC to perfunctorily extract the pronouncement in Ponce and then disregard it in the face of admitted facts in addition to the duly endorsed stock certificates.

On whether the writ of mandamus should issue, Section 3, Rule 65 of the Rules of Court, provides for the rules governing a petition for mandamus, viz: SECTION 3. Petition for mandamus. — When any tribunal, corporation, board, officer or person unlawfully neglects the performance of an act which the law specifically enjoins as a duty resulting from an office, trust, or station, or unlawfully excludes another from the use and enjoyment of a right or office to which such other is entitled, and there is no other plain, speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent, immediately or at some other time to be specified by the court, to do the act required to be done to protect the rights of the petitioner, and to pay the damages sustained by the petitioner by reason of the wrongful acts of the respondent. The petition shall also contain a sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. (Emphases supplied) Accordingly, a writ of mandamus to enforce a ministerial act may issue only when petitioner is able to establish the presence of the following: (1) right clearly founded in law and is not doubtful; (2) a legal duty to perform the act; (3) unlawful neglect in performing the duty enjoined by law; (4) the ministerial nature of the act to be performed; and (5)

the absence of other plain, speedy, and adequate remedy in the ordinary course of law.[31] Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the bank stockholders' right of first refusal and that petitioner was a buyer in bad faith. Both parties refer to Section 98 of the Corporation Code to support their arguments, which reads as follows: SECTION 98. Validity of restrictions on transfer of shares. — Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more than onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person. (Emphases supplied) It must be noted that Section 98 applies only to close corporations. Hence, before the Court can allow the operation of this section in the case at bar, there must first be a factual determination that respondent Rural Bank of Cabadbaran is indeed a close corporation. There needs to be a presentation of evidence on the relevant restrictions in the articles of incorporation j and bylaws of the said bank. From the records or the

RTC Decision, there is apparently no such determination or even allegation that would assist this Court in ruling on these two major factual matters. With the foregoing, the validity of the transfer cannot yet be tested using that provision. These are the factual matters that the parties must first thresh out before the RTC. After finding that petitioner has legal standing to initiate an action for mandamus, the Court now reinstates the action he filed and remands the case to the RTC to resolve the propriety of issuing a writ of mandamus. The resolution of the case must include the determination of all relevant factual matters in connection with the issues at bar. The RTC must also resolve petitioner's prayer for the payment of attorney's fees, litigation expenses, moral damages, and exemplary damages. WHEREFORE, premises considered, the instant petition I is GRANTED. The Decision dated 17 April 2009 and the Order dated 15 July 2009 of the Regional Trial Court, Branch 34, Cabadbaran City, which dismissed petitioner's action for mandamus, are SET ASIDE. The action is hereby REINSTATED and the case REMANDED to the court of origin for further proceedings. The trial court is further enjoined to proceed with [the resolution of this case with dispatch. SO ORDERED. Leonardo-De Castro, Bersamin, PerlasBernabe and Caguioa, JJ., concur.

Teng v. SEC RECIT-READY: This case originated from the case of TCL Sales Corp v. CA. Respondent Ting Ping purchased shares of TCL Sales Corporation (TCL) from Chiu, his brother Teng Ching Lay (President and operations manager of TCL), and Maluto. Teng Ching died. Ting Ping, to protect his shareholdings with TCL, requested petitioner Teng (TCL's Corporate Secretary), to enter the transfer in the Stock and Transfer Book of TCL for the proper recording of his acquisition. He also demanded the issuance of new certificates of stock in his favor. TCL and Teng refused despite repeated demands. Ting Ping filed mandamus with the SEC which was granted. SEC issued a writ of execution. Teng argued that prior to registration of stocks in the corporate books, it is mandatory that the stock certificates are first surrendered because a corporation will be liable to a bona fide holder of the old certificate if, without demanding the said certificate, it issues a new one. On the other hand, Ting Ping argued that Section 63 of the Corporation Code does not require the surrender of the stock certificate to the corporation, nor make such surrender an indispensable condition before any transfer of shares can be registered in the books of the corporation. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. Whether or not the surrender of the certificates of stock is a requisite before registration of the transfer may be made in the corporate books and for the issuance of new certificates in its stead--NO. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. In a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased." The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is, from the original stockholder named in the certificate to the person or entity the stockholder was transferring the shares to, whether by sale or some other valid form of absolute

conveyance of ownership. "[S]hares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock." ● Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded or registered in the books of corporation. Upon registration of the transfer in the books of the corporation, the transferee may now then exercise all the rights of a stockholder, which include the right to have stocks transferred to his name.

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COMPREHENSIVE: ● FACTS: ● This case originated from the case of TCL Sales Corporation and Anna Teng v. Hon. Court of Appeals and Ting Ping Lay. ● Respondent Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Chiu; 1,400 shares from his brother Teng Ching Lay (Teng Ching), who was also the president and operations manager of TCL; and 1,440 shares from Maluto. ● Upon Teng Ching's death, his son Henry Teng (Henry) took over the management of TCL. ● Respondent Ting Ping, to protect his shareholdings with TCL, requested petitioner Teng, TCL's Corporate Secretary, to enter the transfer in the Stock and Transfer Book of TCL for the proper recording of his acquisition. He also demanded the issuance of new certificates of stock in his favor. ● TCL and Teng refused despite repeated demands. ● Ting Ping filed a petition for mandamus with the SEC which was

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granted → SEC en banc affirmed → Petition for review with the CA but was denied → petition for review on certiorari with the ● ●

SC under Rule 45 but was denied. SEC issued a writ of execution. Teng filed a complaint for interpleader with the RTC of Manila to compel Henry and Ting Ping to interplead and settle the issue of ownership over the 1,400 shares, which were previously owned by Teng Ching. ○ RTC found Henry to have a better right to the shares of stock formerly owned by Teng Ching, except as to those covered by Stock Certificate No. 011 covering 262.5

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shares, among others. (***Note that as a consequence, the subject of the orders of execution issued by the SEC pertained only to Chiu's and Maluto's respective shares.) Ting Ping filed an Ex Parte Motion for the Issuance of Alias Writ of Execution for the partial satisfaction of SEC en banc Order directing TCL and Teng to record the shares he acquired from Chiu and Maluto, and for payment of the damages. Teng and TCL filed their respective motions to quash, which was opposed by Ting Ping, who also expressed his willingness to surrender the original stock certificates of Chiu and Maluto to facilitate and expedite the transfer of the shares in his favor. Teng’s arguments: ○ Prior to registration of stocks in the corporate books, it is mandatory that the stock certificates are first surrendered because a corporation will be liable to a bona fide holder of the old certificate if, without demanding the said certificate, it issues a new one. ○ The annexes in Ting Ping's opposition did not include the subject certificates of stock, surmising that they could have been lost or destroyed. ○ There is a discrepancy between the total shares of Maluto based on the annexes, which is only 1305 shares, as against the 1440 shares acquired by Ting Ping based on the SEC Order Ting Ping’s arguments: ○ Section 63 of the Corporation Code does not require the surrender of the stock certificate to the corporation, nor make such surrender an indispensable condition before any transfer of shares can be registered in the books of the corporation. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. ○ (in response to Teng’s 2nd argument) Claimed that his counsel Atty. Simon V. Lao already communicated with TCL's counsel regarding the surrender of the said certificates of stock. SEC denied the motions to quash. Teng filed a petition for certiorari and prohibition under Rule 65 with the CA which was denied. Hence, the present petition.

ISSUE: Whether or not the surrender of the certificates of stock is a requisite before registration of the transfer may be made in the corporate books and for the issuance of new certificates in its stead HELD: NO. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. ● ●

A certificate of stock is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in the document is the owner of a designated number of shares of its stock. ○ It is prima facie evidence that the holder is a shareholder of a corporation. ○ A certificate, however, is merely a tangible evidence of ownership of shares of stock. It is not a stock in the corporation and merely expresses the contract between the corporation and the stockholder. ○ The shares of stock evidenced by said certificates, meanwhile, are regarded as property and the owner of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been dissolved, or unless the right to do so is properly restricted, or the owner's privilege of disposing of his shares has been hampered by his own action.

On the Registration of Transfer ● Section 63 of the Corporation Code prescribes the manner by which a share of stock may be transferred. ○ Certain minimum requisites must be complied with for there to be a valid transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third

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parties, the transfer must be recorded in the books of the corporation. ○ It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative that is the operative act of transfer of shares from the original owner to the transferee. ○ The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is, from the original stockholder named in the certificate to the person or entity the stockholder was transferring the shares to, whether by sale or some other valid form of absolute conveyance of ownership. The delivery or surrender adverted to by Teng, i.e., from Ting Ping to TCL, is not a requisite before the conveyance may be recorded in its books. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks. ○ A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers. In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to decide the question of ownership. ○ If a corporation refuses to make such transfer without good cause, it may, in fact, even be compelled to do so by mandamus. Ting Ping's definite and uncontested titles to the subject shares were already determined in the case of TCL Sales Corp v. CA ○ Ting Ping Lay was able to establish prima facie ownership over the shares of stocks in question, through deeds of transfer of shares of stock of TCL Corporation. Hence, the transfer of shares to him must be recorded on the corporation's stock and transfer book.

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Moreover, Teng cannot refuse registration of the transfer on the pretext that the photocopies of Maluto's certificates of stock submitted by Ting Ping covered only 1,305 shares and not 1,440. ○ As earlier stated, the respective duties of the corporation and its secretary to transfer stock are purely ministerial ○ The discrepancy was also not attended with fraud but a mere product of the failure of the corporation to register with the [SEC] the increase in the subscribed capital stock by 4000 shares. Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded or registered in the books of corporation. Upon registration of the transfer in the books of the corporation, the transferee may now then exercise all the rights of a stockholder, which include the right to have stocks transferred to his name.

On the Issuance of a New Certificate ● The surrender of the original certificate of stock is necessary before the issuance of a new one so that the old certificate may be cancelled. ○ A corporation is not bound and cannot be required to issue a new certificate unless the original certificate is produced and surrendered. ○ Surrender and cancellation of the old certificates serve to protect not only the corporation but the legitimate shareholder and the public as well, as it ensures that there is only one document covering a particular share of stock. ● In the present case, Ting Ping manifested from the start his intention to surrender the subject certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in his name. ○ It would be sacrificing substantial justice if the Court were to grant the petition simply because Ting Ping is yet to surrender the subject certificates for cancellation instead of ordering in this case such surrender and cancellation, and the issuance of new ones in his name.

BERNAS v. CINCO July 1, 2015| Perez, J. | Control and Management of a Corporation Digester: Alexis Bea SUMMARY: The Bernas Group are the incumbent Members of the Board of Directors and Officers of Makati Sports Club whose terms were to expire either in 1998 or 1999. The Cinco Group, meanwhile, are the members and stockholders of the MSC during the December 17, 1997 Special Stockholders Meeting. Because of rumors regarding the corporate funds, the MSC Oversight Committee (MSCOC), composed of past presidents of the club, demanded from the Bernas Group to resign from their positions to pave the way for the election of the new set of officers. Thus, MSCOC called for a Special Stockholders’ Meeting and the Cinco Group were elected. And in the Annual Stockholders’ Meeting in 1998, the removal of the Barnas Group and the election of their replacements were ratified. Due to the filing of several petitions for and against the removal of the Bernas Group from the Board pending before the SEC resulting in the piling up of legal controversies involving MSC, the SEC resolved to supervise the holding of the 1999 Annual Stockholders’ Meeting. During that meeting, it was once again ratified. And ratified again in the 2000 meeting. SICD rendered a Decision in the SEC case finding that the December 17, 1997 Stockholders Meeting and the subsequent meetings ratifying it invalid. It likewise nullified the expulsion of Bernas from the corporation and the sale of his share at the public auction. This was because the said special meeting was prematurely or invalidly called by the Cinco Group, thus failing to produce legal effect and did not remove the Bernas Group as directors of the MSC. SC held that the December 17, 1997 Meeting was invalid for being improperly called. DOCTRINE: A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which are contrary to law, morals or public policy or public duty, and are, like similar transactions between individuals, void. They cannot serve as basis of a court action nor acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. The 17 December 1997 Meeting belongs to the category of the latter, that is, it is void ab initio and cannot be validated. FACTS:  Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws for the primary purpose of establishing, maintaining, and providing social, cultural, recreational and athletic activities among its members.

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Petitioners in G.R. Nos. 163356-57 (Case 1), Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (BERNAS GROUP) were among the Members of the Board of Directors and Officers of the corporation whose terms were to expire either in 1998 or 1999. Petitioners in G.R. Nos. 163368-69 (Case 2) Jovencio Cinco, Ricardo Librea and Alex Y. Pardo (CINCO GROUP) are the members and stockholders of the corporation who were elected Members of the Board of Directors and Officers of the club during the 17 December 1997 Special Stockholders Meeting. Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were then incumbent officers of the corporation, to resign from their respective positions to pave the way for the election of new set of officers. o Agreeing with this, were the stockholders of the corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers and electing new ones. Pursuant to such request, the MSCOC called a Special Stockholders’ Meeting and sent out notices to all stockholders and members stating therein the time, place and purpose of the meeting. o For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC), the meeting proceeded wherein Bernas, Cheng, Africa, Maramara, Frondoso, Macrohon, Jr. and Lim were removed from office and, in their place and stead, Cinco, Librea, Pardo, Aguiling, Villarosa, David, Maronilla, de Leon-Herlihy and Altura, were elected. Aggrieved by the turn of events, the BERNAS GROUP sought the nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it was improperly called before the Securities Investigation and Clearing Department (SICD) of the SEC. Citing Section 28 of the Corporation Code. BERNAS GROUP: The authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which functions merely as an oversight body and is not vested with the power to call corporate meetings. For being called by the persons not authorized to do so, the Bernas Group urged the SEC to declare the 17 December 1997 Special Stockholders’ Meeting, including the removal of the sitting officers and the election of new ones, be nullified. CINCO GROUP: insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned by the Corporation Code and the MSC by-laws. o In justifying the call effected by the MSCOC, they reasoned that Section 25 of the MSC by-laws merely authorized the Corporate Secretary to issue notices of meetings and nowhere does it state that such authority solely belongs to him. o It would be useless to course the request to call a meeting through the Corporate Secretary because he repeatedly refused to call a special stockholders’ meeting despite demands and even filed a suit to restrain the holding of a special meeting.

The newly elected directors initiated an investigation on the alleged anomalies in administering the corporate affairs and after finding Bernas guilty of irregularities, the Board resolved to expel him from the club by selling his shares at public auction. Due to the filing of several petitions for and against the removal of the Bernas Group from the Board pending before the SEC resulting in the piling up of legal controversies involving MSC, the SEC En Banc resolved to supervise the holding of the 1999 Annual Stockholders’ Meeting. During the said meeting, the stockholders once again approved, ratified and confirmed the holding of the 17 December 1997 Special Stockholders’ Meeting. o The conduct of the 17 December 1997 Special Stockholders’ Meeting was likewise ratified by the stockholders during the 2000 Annual Stockholders’ Meeting which was held on 17 April 2000. SICD rendered a decision finding, among others, that the 17 December 1997 Special Stockholders’ Meeting and the Annual Stockholders’ Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from the corporation and the sale of his share at the public auction. CA: declared that 17 December 1997 Special Stockholders’ Meeting invalid for being improperly called but affirmed the actions taken during the Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000. BERNAS GROUP: Agrees with the disquisition of the appellate court that the Special Stockholders’ Meeting is invalid for being called by the persons not authorized to do so, they urge the Court to likewise invalidate the holding of the subsequent Annual Stockholders’ Meetings invoking the application of the holdover principle. CINCO GROUP: Insists that the holding of 17 December 1997 Special Stockholders’ Meeting is valid and binding underscoring the overwhelming ratification made by the stockholders during the subsequent annual stockholders’ meetings and the previous refusal of the Corporate Secretary to call a special stockholders’ meeting despite demand. o

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Whether or not the CA erred in ruling that December 17, 1997 Special Stockholders’ Meeting is invalid—YES. It is invalid.  The 17 December 1997 Special Stockholders’ Meeting is null and void and produces no effect; the resolution expelling the Bernas Group from the corporation and authorizing the sale of Bernas’ shares at the public auction is likewise null and void.  The Corporation Code laid down the rules on the removal of the Directors of the corporation by providing, inter alia, the persons authorized to call the meeting and the number of votes required for the purpose of removal: o Sec. 28. Removal of directors or trustees. - Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided, That

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such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the intention to propose such removal, must be given by publication or by written notice prescribed in this Code. Removal may be with or without cause: Provided, that removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code. Textually, only the President and the Board of Directors are authorized by the bylaws to call a special meeting. In cases where the person authorized to call a meeting refuses, fails or neglects to call a meeting, then the stockholders representing at least 100 shares, upon written request, may file a petition to call a special stockholder’s meeting. In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was called neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate powers, such as the power to call a special meeting, solely vested by law and the MSC by-laws on the President or the Board of Directors. The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and derives its power to control and direct the affairs of the corporation from them. The board of directors, in drawing to itself the power of the corporation, occupies a position of trusteeship in relation to the stockholders, in the sense that the board should exercise not only care and diligence, but utmost good faith in the management of the corporate affairs. The underlying policy of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected b the stockholders, on an annual basis. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over the properties that they do not own. SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers of all the corporations formed under this

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Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors and trustees A corporation’s board of directors is understood to be that body which (1) exercises all powers provided for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and holds all the property of the corporation. Its members have been characterized as trustees or directors clothed with fiduciary character. It is ineluctably clear that the fiduciary relation is between the stockholders and the board of directors and who are vested with the power to manage the affairs of the corporation. The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interests and are ultimately the only beneficiaries thereof. Should the board fail to perform its fiduciary duty to safeguard the interest of the stockholders or commit acts prejudicial to their interest, the law and the by-laws provide mechanisms to remove and replace the erring director. It is apt to recall that illegal acts of a corporation which contemplate the doing of an act which is contrary to law, morals or public order, or contravenes some rules of public policy or public duty, are, like similar transactions between individuals, void. The same principle can apply in the present case. The void election of 17 December 1997 cannot be ratified by the subsequent Annual Stockholders’ Meeting. A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which are contrary to law, morals or public policy or public duty, and are, like similar transactions between individuals, void. They cannot serve as basis of a court action nor acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. The 17 December 1997 Meeting belongs to the category of the latter, that is, it is void ab initio and cannot be validated. Consequently, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any legal effect. The Cinco Group cannot invoke the application of de facto officership doctrine to justify the actions taken after the invalid election since the operation of the principle is limited to third persons who were originally not part of the corporation but became such by reason of voting of government- sequestered shares. Where there is an officer authorized to call a meeting and that officer refuses, fails, or neglects to call a meeting, the SEC can assume jurisdiction and issue an order to the petitioning stockholder to call a meeting pursuant to its

regulatory and administrative powers to implement the Corporation Code. This is clearly provided for by Section 50 of the Corporation Code1 Whether or not the Court of Appeals erred in failing to nullify the holding of the annual stockholders’ meeting on 20 April 1998, 19 April 1999 and 17 April 2000— NO  The subsequent Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000 are valid and binding except the ratification of the removal of the Bernas Group and the sale of Bernas’ shares at the public auction effected by the body during the said meetings. The expulsion of the Bernas Group and the subsequent auction of Bernas’ shares are void from the very beginning and therefore the ratifications effected during the subsequent meetings cannot be sustained. A void act cannot be the subject of ratification.  The 19 April 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it was conducted in accordance to Section 8 of the MSC bylaws, such meeting was supervised by the SEC in the exercise of its regulatory and administrative powers to implement the Corporation Code.  Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the presumption that the corporate officers who won the election were duly elected to their positions and therefore can be rightfully considered as de jure officers. As de jure officials, they can lawfully exercise functions and legally perform such acts that are within the scope of the business of the corporation except ratification of actions that are deemed void from the beginning.  Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate in office. Members of the group had no right to continue as directors of the corporation unless reelected by the stockholders in a meeting called for that purpose every year. They had no right to hold-over brought about by the failure to perform the duty incumbent upon them.

BERNAS v. CINCO Topic: Ultra Vires JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. MACROHON, JR., AND PAULINO T. LIM, ACTING IN THEIR CAPACITY AS INDIVIDUAL DIRECTORS OF MAKATI 1 Sec. 50. Regular and special meetings of stockholders or members. – x x x Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange Commission, upon petition of a stockholder or member, and on a showing of good cause therefore, may issue an order to the petitioning stockholder or member

SPORTS CLUB, INC., AND ON BEHALF OF THE BOARD OF DIRECTORS OF MAKATI SPORTS CLUB, Petitioners, v. JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L. ANG, ELISEO V. VILLAMOR, FELIPE L. GOZON, CLAUDIO B. ALTURA, ROGELIO G. VILLAROSA, MANUEL R. SANTIAGO, BENJAMIN A. CARANDANG, REGINA DE LEON-HERLIHY, CARLOS Y. RAMOS, JR., ALEJANDRO Z. BARIN, EFRENILO M. CAYANGA AND JOHN DOES, Respondents. G.R. Nos. 163356-57: July 01, 2015 JOVENCIO F. CINCO, RICARDO G. LIBREA AND ALEX Y. PARDO, Petitioners, v. JOSE A. BERNAS, CECILE H. CHENG AND IGNACIO A. MACROHON, Respondents. G.R. NOS. 163368-69: July 01, 2015 Ponente: PEREZ, J.: Digest by: Emi Rose S. Remoroza-Parcon FACTS: Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws for the primary purpose of establishing, maintaining, and providing social, cultural, recreational and athletic activities among its members. Petitioners in G.R. Nos. 163356-57, Jose A. Bernas (Bernas), Cecile H. Cheng, Victor Africa, Jesus Maramara, Jose T. Frondoso, Ignacio T. Macrohon and Paulino T. Lim (Bernas Group) were among the Members of the Board of Directors and Officers of the corporation whose terms were to expire either in 1998 or 1999. Petitioners in G.R. Nos. 163368-69 Jovencio Cinco, Ricardo Librea and Alex Y. Pardo (Cinco Group) are the members and stockholders of the corporation who were elected Members of the Board of Directors and Officers of the club during the 17 December 1997 Special Stockholders Meeting. directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning stockholder or member shall preside thereat until at least majority of the stockholders or members present have chosen one of their member[s] as presiding officer

Alarmed with the rumored anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were then incumbent officers of the corporation, to resign from their respective positions to pave the way for the election of new set of officers. Resonating this clamor were the stockholders of the corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers and electing new ones. Pursuant to such request, the MSCOC called a Special Stockholders’ Meeting and sent out notices to all stockholders and members stating therein the time, place and purpose of the meeting. For failure of the Bernas Group to secure an injunction before the Securities Commission (SEC), the meeting (7 December 1997 Special Stockholders Meeting) proceeded wherein the members of the Bernas group were removed from office and, in their place and stead members of the Cinco group were elected. An Annual Stockholders’ Meeting was held on 20 April 1998 pursuant to Section 8 of the MSC bylaws. During the said meeting, which was attended by 1,017 stockholders representing 2/3 of the outstanding shares, the majority resolved to approve, confirm and ratify, among others, the calling and holding of 17 December 1997 Special Stockholders’ Meeting, the acts and resolutions adopted therein including the removal of Bernas Group from the Board and the election of their replacements. Due to the filing of several petitions for and against the removal of the Bernas Group from the Board pending before the SEC resulting in the piling up of legal controversies involving MSC, the SEC En Banc, resolved to supervise the holding of the 1999 Annual Stockholders’ Meeting. During the said meeting, the stockholders once again approved, ratified and confirmed the holding of the 17 December 1997 Special Stockholders’ Meeting. The conduct of the 17 December 1997 Special Stockholders’ Meeting was likewise ratified by the stockholders during the 2000 Annual Stockholders’ Meeting which was held on 17 April 2000.

On 9 May 2000, the SICD rendered a Decision in SEC Case No. 12-97-5840 finding, among others, that the 17 December 1997 Special Stockholders’ Meeting and the Annual Stockholders’ Meeting conducted on 20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from the corporation and the sale of his share at the public auction. The supposed Special Stockholders’ Meeting of December 17, 1997 was prematurely or invalidly called by the the Cinco Group. It therefore failed to produce any legal effects and did not effectively remove the Bernas Group as directors of the Makati Sports Club, Inc. The April 20, 1998 meeting was not attended by a sufficient number of valid proxies. No quorum could have been present at the said meeting. No corporate business could have been validly completed and/or transacted during the said meeting. Further, it was not called by the validly elected Corporate Secretary Victor Africa nor presided over by the validly elected president Jose A. Bernas. Even if the April 20, 1998 meeting was valid, it could not ratify the December 17, 1997 meeting because being a void meeting, the December 17, 1997 meeting may not be ratified. (3) The April 1998 meeting was null and void and therefore produced no legal effect. (4) The April 1999 meeting has not been raised as a defense in the Answer nor assailed in a supplemental complaint. However, it has been raised by [the Cinco Group] in a manifestation dated April 21, 1999 and in their position paper dated April 8, 2000. Its legal effects must be the subject of this Decision in order to put an end to the controversy at hand. In the first place, by [the Cinco Group’s] own admission, the alleged attendance at the April 1999 meeting amounted to less than 2/3 of the stockholders entitled to vote, the minimum number required to effect a removal. No removal or ratification of a removal may be effected by less than 2/3 vote of the stockholders. Further, it cannot ratify the December 1997 meeting for failure to adhere to the requirement of the By-laws on notice as explained in

paragraph (2) above, even if it was accompanied by valid proxies, which it was not.

In a Resolution21 dated 27 April 2004, the appellate court refused to reconsider its earlier decision.

(5) The [the Cinco Group], their agents, representatives and all persons acting for and conspiring on their behalf, are hereby permanently enjoined from carrying into effect the resolutions and actions adopted during the 17 December 1997 and April 20, 1998 meetings and of the Board of Directors and/or other stockholders’ meetings resulting therefrom, and from performing acts of control and management of the club.

Aggrieved by the disquisition of the Court of Appeals, both parties elevated the case before this Court by filing their respective Petitions for Review on Certiorari. While the Bernas Group agrees with the disquisition of the appellate court that the Special Stockholders’ Meeting is invalid for being called by the persons not authorized to do so, they urge the Court to likewise invalidate the holding of the subsequent Annual Stockholders’ Meetings invoking the application of the holdover principle. The Cinco Group, for its part, insists that the holding of 17 December 1997 Special Stockholders’ Meeting is valid and binding underscoring the overwhelming ratification made by the stockholders during the subsequent annual stockholders’ meetings and the previous refusal of the Corporate Secretary to call a special stockholders’ meeting despite demand. For the resolution of the Court are the following issues:

(6) The expulsion of complainant Jose A. Bernas as well as the public auction of his share is hereby declared void and without legal effect, as prayed for. While it is true that [the Cinco Group] were not restrained from acting as directors during the pendency of this case, their tenure as directors prior to this Decision is in the nature of de facto directors of a de facto Board. Only the ordinary acts of administration which [the Cinco Group] carried out de facto in good faith are valid. Other acts, such as political acts and the expulsion or other disciplinary acts imposed on the [the Bernas Group] may not be appropriately taken by de facto officers because the legality of their tenure as directors is not complete and subject to the outcome of this case. (7) No awards for damages and attorney’s fees.18 On appeal, the SEC En Banc, in its 12 December 2000 Decision19 reversed the findings of the SICD and validated the holding of the 17 December 1997 Special Stockholders’ Meeting as well as the Annual Stockholders’ Meeting held on 20 April 1998 and 19 April 1999. On 28 April 2003, the Court of Appeals rendered a Decision declaring the 17 December 1997 Special Stockholders’ Meeting invalid for being improperly called but affirmed the actions taken during the Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000.

ISSUES: Whether or not these meetings are valid: 1. the 17 December 1997 special stockholders’ meeting; 2. the Annual stockholders’ meeting on a. 20 April 1998, b. 19 April 1999, and c. 17 April 2000. RULING: 1. No, the 1997 special stockholders meeting was invalid for being improperly called. Both the Corporation Code (on the provisions on Removal of Directors and Meetings) and the MSC by-laws which govern the manner of calling and sending of notices of the annual stockholders’ meeting and the special stockholders’ meeting were not followed.

Textually, only the President and the Board of Directors are authorized by the by-laws to call a special meeting. The MSCOC is not authorized to exercise corporate powers, such as the power to call a special meeting. The subsequent ratification made by the stockholders did not cure the substantive infirmity, the defect having set in at the time the void act was done. The defect goes into the very authority of the persons who made the call for the meeting. It is apt to recall that illegal acts of a corporation which contemplate the doing of an act which is contrary to law, morals or public order, or contravenes some rules of public policy or public duty, are, like similar transactions between individuals, void. They cannot serve as basis for a court action, nor acquire validity by performance, ratification or estoppel. The same principle can apply in the present case. The void election of 17 December 1997 cannot be ratified by the subsequent Annual Stockholders’ Meeting. A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which are contrary to law, morals or public policy or public duty, and are, like similar transactions between individuals, void. They cannot serve as basis of a court action nor acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. The 17 December 1997 Meeting belongs to the category of the latter, that is, it is void ab initio and cannot be validated. Consequently, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any legal effect. The removal of the Bernas Group, as well as the election of the Cinco Group, effected by the assembly in that improperly called meeting is void, and since the Cinco Group has no legal right to sit in the board, their subsequent acts of expelling Bernas from the club and the selling of his shares at the public auction, are likewise invalid.

2. Yes, the three Annual Stockholders Meetings (1998, 1999, 2000) were valid because it was sanctioned by Section 845 of the MSC bylaws. Unlike in Special Stockholders Meeting, wherein the bylaws mandated that such meeting shall be called by specific persons only, no such specific requirement can be obtained under Section 8. The 1999 Annual Stockholders Meeting is likewise valid because in addition to the fact that it was conducted in accordance to Section 8 of the MSC bylaws, such meeting was supervised by the SEC in the exercise of its regulatory and administrative powers to implement the Corporation Code. Needless to say, the conduct of SEC supervised Annual Stockholders Meeting gave rise to the presumption that the corporate officers who won the election were duly elected to their positions and therefore can be rightfully considered as de jure officers. As de jure officials, they can lawfully exercise functions and legally perform such acts that are within the scope of the business of the corporation except ratification of actions that are deemed void from the beginning. Considering that a new set of officers were already duly elected in 1998 and 1999 Annual Stockholders Meetings, the Bernas Group cannot be permitted to use the holdover principle as a shield to perpetuate in office. Members of the group had no right to continue as directors of the corporation unless reelected by the stockholders in a meeting called for that purpose every year. They had no right to hold-over brought about by the failure to perform the duty incumbent upon them. If they were sure to be reelected, why did they fail, neglect, or refuse to call the meeting to elect the members of the board.

PHILIPPINE ASSOCIATED SMELTING v. PABLITO O. LIM, GR No. 172948, 2016-10-05 Facts:

PASAR ) is a corporation... engaged in copper smelting and refining. collectively referred to as petitioners) were former senior officers and presently shareholders of PASAR holding 500 shares each Injunction... was filed by PASAR... seeking to restrain petitioners from demanding inspection of its confidential and inexistent records. RTC issued an Order granting PASAR's prayer for a writ of preliminary injunction Aggrieved, Lim, Agcaoili, and Padilla filed before the Court of Appeals a Petition for Certiorari Court of Appeals held that there was no basis to issue an injunctive writ,... Hence... this Petition Respondents wrote another letter dated January 30, 2004 demanding again that they be allowed to inspect, among others, the confidential records.[46] On March 31, 2006, respondents wrote another letter threatening to file criminal charges if they were not allowed to inspect the confidential records. They stated that they wanted to ensure that petitioner complied with environmental laws in the operations of its plant in Leyte. respondents Lim and Padilla wrote to demand that they be allowed to inspect the audited financial statements for 2004 and 2005; the interim statements for the end of May 2006; and more detailed records on finance, production, marketing, and purchasing. Issues: whether injunction properly lies to prevent respondents from invoking their right to inspect We deny the Petition. Ruling: We deny the Petition.

Respondents wrote another letter dated January 30, 2004 demanding again that they be allowed to inspect, among others, the confidential records.[46] On March 31, 2006, respondents wrote another letter threatening to file criminal charges if they were not allowed to inspect the confidential records. They stated that they wanted to ensure that petitioner complied with environmental laws in the operations of its plant in Leyte. For an action for injunction to prosper, the applicant must show the existence of a right, as well as the actual or threatened violation of this right Thus, an injunction must fail where there is no clear showing of both an actual right to be protected and its threatened violation, which calls for the issuance of an injunction. The Corporation Code provides that a stockholder has the right to inspect the records of all business transactions of the corporation and the minutes of any meeting at reasonable hours on business days. The stockholder may demand in writing for a copy of excerpts from these records or minutes, at his or her expense: The right to inspect under Section 74 of the Corporation Code is subject to certain limitations. However, these limitations are expressly provided as defenses in actions filed under Section 74. Thus, this Court has held that a corporation's objections to the right to inspect must be raised as a defense Terelay Investment and Development Corp. v. Yulo[58] has held that although the corporation may deny a stockholder's request to inspect corporate records, the corporation must show that the purpose of the shareholder is improper by way of defense: The right of the shareholder to inspect the books and records of the petitioner should not be made subject to the condition of a showing of any particular dispute or of proving any mismanagement or other occasion rendering an examination proper, but if the right is to be denied, the burden of proof is upon the corporation to show that the purpose of the shareholder is improper, by way of defense.

The clear provision in Section 74 of the Corporation Code is sufficient authority to conclude that an action for injunction and, consequently, a writ of preliminary injunction filed by a corporation is generally unavailable to prevent stockholders from exercising their right to inspection. Specifically, stockholders cannot be prevented from gaining access to the (a) records of all business transactions of the corporation; and (b) minutes of any meeting of stockholders or the board of directors, including their various committees and subcommittees. Specifically, corporations may raise their objections to the right of inspection through affirmative defense in an ordinary civil action for specific performance or damages, or through a comment (if one is required) in a petition for mandamus.[64] The corporation or defendant or respondent still carries the burden of proving (a) that the stockholder has improperly used information before; (b) lack of good faith; or (c) lack of legitimate purpose.[65] WHEREFORE, the Petition is DENIED. Principles: An action for injunction filed by a corporation generally does not lie to prevent the enforcement by a stockholder of his or her right to inspection